Various updates on the possible drivers of the GMAC announcement suspending its foreclosures in 23 states. Max Gardner, a North Carolina bankruptcy attorney who is held in high esteem and is playing a leading role in legal efforts against foreclosure fraud, provided this comment on our earlier post on the GMAC bombshell:

I believe this action relates to thousands of false affidavits filed by an officer of GMAC Residential Funding. It is also my understanding that this particular officer may be facing a multitude of federal and state criminal charges. As of this date, thousands of foreclosure affidavits have been withdrawn in Florida and a number of notices of false evidence have been filed by the mill law firms with the Florida trial and appellate courts. This, in my view, is the tip of the iceberg!

More details from Jeffrey Stephens of the Florida Default Law Group via e-mail:

On September 14, 2010, Florida Default Law Group filed “Notices” in foreclosure actions that the firm was withdrawing Affidavits it had previously filed. The Affidavits were signed by Jeffrey Stephan of GMAC Mortgage/Homecomings Financial in Montgomery County, PA. Stephan had previously admitted in depositions that he signed thousands of such affidavits each month with no knowledge of the contents and in many cases without even bothering to read the Affidavits. In the Notices, Florida Default claimed that “the undersigned law firm was not aware” that the Stephans Affidavits were improper and had a good faith belief in the Stephans Affidavits. Stephans signed so many Affidavits, however, on behalf of so many different securitized trusts, that his lack of actual knowledge should have been obvious. Many other mortgage servicing companies and foreclosure firms have filed thousands of other worthless, unfounded Affidavits. Perhaps the Law Offices of Marshall Watson will notify courts that Lost Note Affidavits signed by Linda Green, Tywanna Thomas and Korell Harp are also improper; perhaps The Law Offices of David Stern will notify Courts that their own office manager, Cheryl Samons, had no knowledge and did not even read the Affidavits she signed. The dark days of the foreclosure “robo-signers” seem to finally be coming to an end in Florida. Will the same judges who accepted thousands of these worthless Affidavits now believe the allegations that the foreclosure law firms acted in good faith when they presented these documents to Courts? An example of the Notice filed by Florida Default is available in the “Pleadings” section of this site. Highlights from the deposition of Jeffrey Stephan are available in the “Articles” section. Scott Anderson, Bryan Bly, Margaret Dalton, Erica Johnson-Seck, Crystal Moore and the other professional signers may finally be held accountable for their sworn false statements.

I’m also told that an Mortgage Bankers Association conference which is in progress, is “freaking out” over this. Um, how could they not know this dead body was in the room?

This analysis from Jasraj Vaidya at Barclays via Brian C (no online source). As this alludes, this has the potential to extend/derail foreclosures and potentially increase loss severities. Moreover, the evidence is mounting that documentation fraud has become widespread, if not pervasive, because the securitization machinery effectively broke down on the back end (the steps necessary to get the note, the borrower’s IOU, into the trust, were not completed, and after the fact forgery is used to create a legally acceptable paper trail).

It was reported on Bloomberg today that GMAC has sent a memo to all brokers suspending all foreclosure activity against delinquent borrowers in 23 states…

Most likely an issue with judicial states

Using publicly available data from HUD and RealtyTrac, we have created a list of judicial foreclosure states. These are states where judicial foreclosures are most common and in which the lender has to appear before a judge and obtain a court order before initiating foreclosure proceedings against the delinquent borrower. Such states tend to have much longer foreclosure timelines than non-judicial states. What is striking about the list of states in the GMAC announcement is that all but one (North Carolina) are judicial states. Also, all judicial states in the country but one (Delaware) are in the GMAC list. This would hint at some potential issues with judicial states that is driving the GMAC directive.

A recent news report provided some hints at the type of issues with judicial foreclosures that servicers may look to avoid before it become a larger issue. The Florida Attorney General recently announced an investigation of the three largest foreclosure law firms in the state. These firms represent the lenders, and there have been question about claims of note ownership put forth by these firms during foreclosure
proceedings. A clean record of note ownership is lost or hazy in many cases, due to multiple transfers of the notes. The moratorium can be an attempt on the part of RFC to ensure that the process does not have significant flaws that can leave it open to legal action in the future.

At this stage, we are unable to ascertain what that exact issue might be. What is certain is that foreclosure timelines in those states for GMAC loans will be extend further, potentially adversely affecting their eventual severity.

Can it also be a lawsuit in the making?

Given that the directive spans multiple states, and given previous experience with Countrywide, there is always the possibility of some multi-state settlement in the works for various disclosure issues with
lending practices. However, we found some major omissions when we compared the list of states in the GMAC announcement with those involved in the Countrywide announcement. California, Nevada and Michigan – three states with significant mortgage volume, as well as distressed mortgages – are missing from the announcement. This makes us a little skeptical whether this is indeed a class action lawsuit in the making on the lines of the Countrywide one. On the other hand, the Countrywide list ballooned from 11 states initially to 42 states and DC finally, so one cannot yet rule out multi-state action. However, given greater evidence about judicial states, we still believe that to be the primary driver of
this directive.

Update 5:00 PM: GMAC has issued a press release denying the Bloomberg story, which is pretty curious, given that Bloomberg cited specific language from a memo GMAC issued last Friday and got confirmation of the memo from a named GMAC source. As we will show further down, Bloomberg has modified its earlier report only slightly. While GMAC asserts it it in business as usual mode, this is hardly the case; it has most assuredly suspended evictions in the 23 states in question.

Note that the press release indicates that the GMAC investigation started more than three months ago. It further indicates (at the top, where one might not notice the timing issue) that “new foreclosures” are proceeding. That isn’t defined, since foreclosures consists of many legal filings, but it gives the impression of meaning newly-initiated foreclosures. Moreover, given the apparent change in procedures, it also raises the question of whether this change will restrict the number of properties that can be foreclosed upon. As we have indicated, the evidence is mounting that private label securitizations in the post 2004 era suffered from widespread, if not endemic, failure to convey the note (the borrower’s IOU) to the trust properly, which means the trust cannot foreclose (ie, the trust lacks legal standing), and the time has long passed for any easy remedies to be available.

Note even more curiously, this memo takes the line that the problem was “procedural”. Hhm. So they found they had an internal officer signing thousands of bogus affidavits? He presumably would not have gone this route if there was not an impediment (presumably failure to convey the note through the proper chain of endorsements, as required by the Pooling & Servicing Agreement). And what workaround have they come up with, exactly?

Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.

The speculation likely emanates from a direction previously given by GMAC Mortgage to certain of its outsource vendors to allow time to address a potential issue that was raised in a number of existing foreclosures challenging the internal procedure we used for executing one or more judicially required forms. This direction was to suspend evictions and REO closings where the related foreclosure could have been impacted by the same internal procedure. We are also reviewing certain previously completed foreclosures where the same procedure may have been used.

We are unable to comment on the specific merits of the challenge because some of them are in litigation. Nevertheless, a new process has already been developed and implemented so that though some existing foreclosures may experience delays while corrective action is taken, there will be no interruption in new foreclosures. These delays are expected to be resolved within the next few weeks and certainly before year end, without serious consequence. GMAC Mortgage has been addressing the procedural challenge for more than three months. In all other respects, the mortgage business is operating as usual.

Now contrast this release, which in isolation reads like a denial, with the updated Bloomberg story, which shows that you can drive a truck through “In all other respects” qualification to the “business as usual” claim:

Ally Financial Inc.’s GMAC Mortgage unit told brokers and agents to halt evictions tied to foreclosures on homeowners in 23 states including Florida, Connecticut and New York….

The company has been working on the issue for “more than three months” and expects it to be resolved “within the next few weeks,” Proia said. She declined to provide further details, saying some of the cases are in litigation.

Suspensions will occur “where the related foreclosure could have been impacted by the same internal procedure. We are also reviewing certain previously completed foreclosures where the same procedure may have been used,” Proia said.

The lender will suspend sales of bank-owned properties and extend closings 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the memo

MINNEAPOLIS, Sept. 20 /PRNewswire/ — Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.

There’s a Florida company called “Nationwide Title Clearing” that handles lots of property reconveyance documents. Here in Bellingham, Wash., at the opposite corner of the country, I’m finding many such documents filed on properties here, signed by a small number of individuals identified as “vice presidents” of various financial institutions. I’m trying to find out if these documents, with little curlicue scribbles as signatures, are legally valid. This is a non-judicial foreclosure state.

So what happens if these ownership documents are shown to have been signed w/o no knowledge of the properties? It sounds like they can’t foreclose then. Does the paperwork lead to another owner of the mortgages? Can that owner of the mortgage foreclose? If not, can anyone foreclose on those homes? If not, does that mean that these folks can stay in their houses w/o making mortgage payments … essentially that they have free housing?

I would love to start seeing charges brought, and convictions obtained, for: forgery, uttering a forgery, possession of a forged instrument, perjury, subbornation of perjury, bribing a witness, bribe receiving by witness, tampering with public records, filing of sham pleadings, fraud on the court, etc.

And attorneys must needs be prosecuted as well, both criminally and with their BAR Associations. Can you say “dibarrment” boys and girls?

Reading between the lines here, I think this is probably about “true and correct copies of originals” affidavits. The people signing them don’t ever see first hand the originals they’re making their statements to support. Very bad for them, and the cases depending on them.

This will affect everybody in a by-action state all most lenders, since the T&CC affidavit is what gets foreclosure, what’s know as a routine “document case” into court.

Note: I do not think this specifically relates to MERS assignments or assignments at all. The T&CC affidavit is a court document, not a real estate document.

Go short on the E&O insurers for the law firms and foreclosure processing companies. Ulitmately, it is really “faster, better, cheaper” that is going to be the culprit here. ) O for 3 ain’t bad.

Not only do the rules require the affiant executing the affidavit of merit to have personal knowledge it is also required that the records referred to in the affidavit of merit actually be ATTACHED to the affidavit. Further all of this needs to be attached to the motion for summary judgment.

So many balls are being dropped by the courts, by plaintiffs, and even by defense counsel.

A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. If a paper or part of a paper is referred to in an affidavit, a sworn or certified copy must be attached to or served with the affidavit. The court may permit an affidavit to be supplemented or opposed by depositions, answers to interrogatories, or additional affidavits.

Federal Rule 6(c)(2) has this to say about attaching affidavits to a motion:

(2) Supporting Affidavit.

Any affidavit supporting a motion must be served with the motion. Except as Rule 59(c) provides otherwise, any opposing affidavit must be served at least 7 days before the hearing, unless the court permits service at another time.

“So what happens if these ownership documents are shown to have been signed w/o no knowledge of the properties? It sounds like they can’t foreclose then. Does the paperwork lead to another owner of the mortgages? Can that owner of the mortgage foreclose? If not, can anyone foreclose on those homes? If not, does that mean that these folks can stay in their houses w/o making mortgage payments … essentially that they have free housing?”

What happens? No one pays their mortgages and you kiss the banking system and government good bye. I do not see it coming to pass. If so hang on to your hats..

The alternative of the foreclosure train continuing to gain speed (which it is doing), having our middle class wiped out, and skyrocketing rates of every bad societal malady overwhelming us, and that for the next several decades, is even less acceptable to me.

It seems it is largely the “banks” that created this mess. If there is any one/s, or any party/parties or entities that need to take the fall I believe it to be them.

Besides, our current monetary system was a bad idea from inception back in 1913. I see a reset button as a good thing. Kind of like ripping off a bandaid.

“…the securitization machinery effectively broke down on the back end (the steps necessary to get the note, the borrower’s IOU, into the trust …”

Do these circumstances now permanently void the borrower’s note? Or does it just mean a tremendous amount of bookkeeping cleanup (e.g. tracking down the former legal holders of the notes and properly executing the transfer into the trust? Wow, either way, this is huge-and- a much more upsetting scenario than what was being discussed a few days ago on NC.

Side note, if a large number of former liar loan recipients hit the lottery because of this mess and somehow get their homes back or continue to own them now debt free, just hope the lending institution that has to write the debt off remembers to issue the 1099C’s( Cancellation of Debt income). If the government (taxpayers) winds up having to pay for this mess it should make sure to collect appropriate income taxes from the winners.

Actually, I’ve been saying this for months, at least since May. The failure to convey the note correctly has huge implications. The problem is the lack of centralized reporting makes it hard to be definitive re conclusions, but the evidence all points to a widespread violation of established procedures, and it appears to have started roughly in 2004.

So when these deals were set up the mortgage brokers put unqualified people in houses they couldn’t afford, and packaged up the loans for an investment firm to sell as a AAA CDOs to some pension fund. The brokers and and bankers got big fat fees (fees based on loan size), and walked away from the mess.

So now, are we shocked when a foreclosure mill fakes thousands of documents probably for a FEE? Sounds sorta like the same cast of characters that ran the first scam are back for a second cut at big fat fees and walking away from the mess.

Heck, as a taxpayer, I might be one of the owners of GMAC. What’s the transactional costs on a foreclosure and who gets the bill?

Go for it .. all about-to-be-foreclosed home owners (who have received notices)..

This presents a great opportunity for about-to-be-foreclosed home owners to come together and get themselves a battery of lawyers, who might be interested now because they can get free publicity, and go after these fraudsters.

Soon all the fraudsters will be “singing” on each other, hoping the others go to “Sing Sing” and not themselves. And the owners of the MBS that have no backing , well … if I WERE GMAC I’d be scared form my life. Thieves are as thieves do. And our Gov’t crooks bailed out these crooks . Crooks are as crooks do . Know them ALL by their fruits . PROSECUTE AND IMPRISON !!!!!!!!!

My mortgage was refinanced through GMAC back in 2003. So for my own peace of mind, how do I go about determining who actually owns the note on my house? If it’s not GMAC, should I be paying the other party directly? Because when I finish paying off my loan, if GMAC does not hold the note, they can’t convey the deed. Worse yet, how do I know that the money I did pay actually went toward my mortgage?

@Chris H – Check your local county clerk of courts website first. If you’re lucky and live in one with electronic documents like mine (they scan in all filed legal documents) then you may be able to search and pull up the documentation trail. As long as it doesn’t pass through MERS at any point you should be okay. If you’re truly concerned though I would hire a lawyer and look into the mechanics of ‘Quiet Title’ lawsuits.

Sounds like there are a lot of you who are connecting the dots finally. The banksters (fraudsters) are in deep poop now; obfuscation as a modus operendi is going to get rampant, as is seen with GMAC. BofA is next. I’d like to hear more about the courts which have “connected the dots” with the help of our attorneys and actually pinned the tail on the donkey, giving title to the homeowner. It is becoming obvious that we can stay in our houses indefinitely when we stop a MERS foreclosure, but what about getting the title?

Lawyers are always making mistakes in the foreclosure mill madness. Judges too are helping compound the mistakes by virtually standing on the sidelines while they let the lawyers devour homeowners. Because of this neighborhoods with high concentrations of foreclosures are being trashed and this trend of the dismantling or the destruction of foreclosures by homeowners is accelerating.

The banking institutions want it all. I am sure there are people in high places that understand that the game is permanently fixed, and becoming more so, yet do not do a thing about it.

This disaster is enabling the banks and other cashed up (Wall Street) investors to pick the eyes out of the declining market which is fast heading for rock bottom prices. Unless the banks flush the country with cheap loans once again (don’t hold your breath) real estate prices at their peak of a few years ago will not been seen in a decade or more.

What is it that the banks are so afraid of, that they must force fraud and theft through the courts, just to clear the enormous backlog of foreclosures? I can only guess that the two year redemption period prior to a tax deed sale in Florida might be heavy on their minds.

We just went to court and need to get out by October 17,2010.Foreclosure.At firts we made to much the second we did not make enuogh the third time, well THey said it was to late and we couldn’y do nothing that the house went to foreclosure and went to auction and GMAC was the owner again. Then they took us to court..after 10 years we lost our home.